Jim MacInnes – Externalities

Transcript:

energy-101.org : Can you give me a really brief example of an externality that affects you right here where you live?

Jim : Well, I live in rural Northern Michigan where we don’t have a lot of industry. And I can tell you what happens in Gary, Indiana or Chicago, Illinois impacts the health of our people living in this community. According to the EPA, Benzie County is a non-attainment area for ozone. And that’s caused by nitrous oxide and volatile organic chemicals being at the ground level. Ozone is a very good thing to have in the atmosphere. It’s not good to have it ground level. So when you’re bicycling or running or swimming, you can feel the smog in your lungs; you can feel it in your eyes. Obviously those kinds of things, particularly for people that might not be as healthy, they can affect their health and cause them to have to go to the hospital and deal with asthma and problems. So that’s an example or an externality. An externality is really a spill-over cost or benefit that’s not really included in the price of something. It would be incurred by someone who is really not involved by the transaction of something. Like for example, if you were to buy electricity, it would be another person who would be impacted, who is maybe not involved in the electricity transaction. It could be a positive externality or a negative externality.

I think a good example of a positive externality might be if you lived next door to someone, and they fix up their house, and they create gardens in their yard, and you’re the next door neighbor. They create a beautiful place, and it positively affects the neighborhood. So you’re the next door person, and that could affect the value of your property.

But the externalities that we really need to focus on in terms of energy would be the negative externalities. An idea of the negative externalities could be, for example, the health costs that are incurred by burning coal. Actually from a coal plant, there are a lot of externalities and impacts. They could include hospital admissions. They could include lost work days, heart attacks, that sort of thing. And actually there’s a study called the Toll from Coal, which identifies that existing coal plants have caused probably about 100 billion dollars a year in externalities. And these would be, for example, 20,400 heart attacks, 1.6 million lost work days each year, 9,700 hospital admissions. Of course you could put a value on each of those. I was reading a study recently where they tested 265 streams in the US. They tested the fish in the stream for mercury, and 100% of the fish tested showed that they had mercury, 66% of which were over the EPA limits. And this would be caused primarily from the burning of coal and the mercury that gets into the streams and lakes of our country.

energy-101.org : Why don’t we have the coal plant pay for all of these costs? We charge people… We’re paying for the electricity, and they’re running the coal plant. Why doesn’t the coal plant pay for all these things?

Jim : Well, the way that our pricing mechanism is set up, the price of these externalities is really not included in the cost of electricity. And I think a lot of people don’t want to see their costs, their direct costs go up, because those are paid directly by the energy user. Where these other costs are more socialized, and they’re paid by all of us. They’re kind of hidden costs.